A variety of systems have been developed for automating portions of the securities trading business from customer accounts through order execution and block allocation.
U.S. Pat. Nos. 4,346,442 4,376,978 and 4,774,663, owned by Merrill Lynch, are directed to systems for operating and maintaining securities brokerage-cash management accounts.
Systems for monitoring market performance and aiding investors in the trade decision-making process have also been developed. British patent publications GB 2 161 003 A and 2 210 714 A are directed to systems for distributing, processing and displaying financial information. U.S. Pat. No. 4,949,248 discloses a local area network for shared access of information services or shared control of application programs, having particular utility for trading rooms of securities firms.
U.S. Pat. Nos. 4,674,044, 4,823,265 and 5,101,353 are directed to electronic trade execution systems.
The prior art system of FIG. 5 transmits messages to brokers alerting them to changes in institutional investors' accounts. Following trade execution, the prior art system of FIG. 6 permits institutional investors to transmit information to the broker concerning allocation of the shares of an executed block trade among various ones of an institution's accounts. When used in conjunction with the system of FIG. 5, the FIG. 6 system transmits account information to brokers for each block trade allocation.
The Depository Trust Company's (DTC) Institutional Delivery (ID) System is designed to partially automate the book entry settlement of DTC-listed U.S. equities. At the end of each U.S. trading day, brokers report trade information on a batch basis to DTC. The day after the trade, so-called "T+1", DTC issues a confirmation message to the pertinent broker, institution and custodian bank, and the institution returns an affirmation prior to book entry settlement. This system is only useable for DTC-listed U.S. equities, requires brokers to collect and input information relative to each trade, provides no mechanism for insuring the accuracy of the trade information, and does not operate on a real time basis.
At least the last of these limitations will allegedly be addressed by DTC's forthcoming interactive ID system. Specifications disclosing the type of information this new system would be capable of handling as compared with batch ID were printed on Sep. 29, 1993.
None of the prior art systems are directed to improving the accuracy of, and speed of communication of, instructions for exchanging the purchase money and the security to settle an executed trade. Thus, none of the prior systems adequately speeds trade settlement which is accomplished, if at all, by a patchwork of faxes, telexes and telephone calls among institutional investors, brokers, and custodians.
The speed with which trade decisions can now be made and executed has put increasing pressure on security trading participants, including institutional investors, brokers, and custodians to speed up the trade settlement process during which the purchase money is transferred to the broker or seller's agent, and title to the securities is transferred to the buyer's agent or broker.
The Securities and Exchange Commission has recently mandated that as of Jun. 1, 1995, U.S. securities must be settled within three days of the trade date, so-called "T+3". Currently, U.S. securities must be settled within five days of the trade date or "T+5". Thus, settlement systems which do not operate on a real time basis may suffer increasing numbers of settlement failures due to elapsed time.
Settling global securities trades ks particularly difficult due to regulatory overlap, regulatory voids, language barriers, fluctuating exchange rates, multiple taxing authorities, the physical distance between the parties, and other factors. On cross border trades, settlement failures may be as high as 30%. With institutional investors routinely making cross border trades for blocks of over 100,000 shares, settlement failures are very expensive for all parties. Settlement delays are also costly since the uncertainty of outcome limits investors' abilities to place subsequent trade orders.
Recognizing the need to reduce settlement time for cross border securities trades, two organizations have worked on parallel paths to standardize the type and format of data transmitted between security trading participants. In Europe, the Industry User Group (IUG) published a "Business Requirements Specification", ver. 1, on Feb. 3, 1992, setting standard formats of electronic messages between institutional investors and brokers. In the United States, the Industry Standardization for Institutional Trade Communication (ISITC) committee has published its own standard format for moving trade details between institutional investors and custodians. These formats standardize the type of information exchanged between security trading participants but do not disclose or suggest specific systems or methods for achieving the exchange, speeding the exchange, or improving accuracy of the information exchanged.
What is desired, therefore, is a system for improving the accuracy of trade settlement information and the speed with which trade settlement information is communicated to trade settlement participants to reduce the time required to settle securities trades and to improve the settlement rate for securities trades. Providing a system in which the settlement information complies with both the IUG and ISITC standard formats is also desired.